In the last few months the Ghana Cedi has lost grounds against the major
international currencies such as the United States Dollar, the British
Pound Sterling and the European Union Euro. The speed of depreciation of
the cedi seems to have taken everybody by surprise.
Not long ago, when the cedi was redenominated in 2006, a Dollar could be
exchanged for less than a Cedi and out of excitement for seeing our
currency robbing shoulders with such a major currency as the United
States Dollar, some people named the Cedi, “Kuffour Dollar” perhaps in
expression of their happiness for seeing the Cedi rising in value
against the Dollar.
Unfortunately, the appreciation was not sustainable because it was not
backed by the expected macroeconomic fundamentals. Therefore, the Cedi
started losing value until today that we are witnessing one of the most
difficult times in the life of the Cedi. At present, one Dollar is worth
almost equivalent to two Cedis. This is bringing untold hardship on the
economy. What has gone wrong?
Several people, including economic gurus and businessmen in Ghana, have
suggested numerous methods or mechanisms for arresting the fall in the
value of the Cedi. Just about a week ago rumours had it that Bank of
Ghana was considering the prevention of individuals and some businesses
from keeping foreign currency accounts in Ghanaian banks.
The intuition behind this is simple and as one school of thought puts it
“If you are in Ghana, why do you have to keep a bank account in a
foreign currency? We have the Cedi that should be sufficient for us”,
meaning all accounts in Ghana should be held in Cedis. Of course, this
line of thinking is commendable and strongly backs the argument that
Ghanaians do not need to keep accounts in foreign currencies whilst in
Ghana. The question is, is that the root-cause of the Cedis’ sharp
depreciation in value?
Some even argue that currency traders are to be blamed; since they keep
accounts in foreign currencies they speculate on the value of the Cedi
in order to profit from its depreciation and appreciation.
Others have put the blame on importers. They explain that foreign
currencies are required by importers for international transactions and
this leads to excess of demand over the supply of scarce foreign
currencies thereby causing unnecessary pressure which ends up in sharp
decrease in the value of the Cedi. They contend that in the heat of
shortage of foreign currencies, people are less careful in terms of how
many Cedis they have to exchange for a much- needed foreign currency, be
it the Dollar, Euro or Pound Sterling.
The debate as to who or what is the cause of the Cedis’ sharp
depreciation in value may go on unabated. Interestingly, the Central
Bank has stepped in to salvage the situation. However, this has fuelled
the rumour that the solution being proposed may end up preventing people
from keeping accounts with Ghanaian banks in foreign currencies. This
is the focus of this article. The big question I ask is, will the
prevention from keeping foreign currency accounts in Ghanaian banks do
the trick of helping the battered cedi gain some strengths against its
foreign counterparts especially against the likes of the Euro, Pound and
Dollar?
Is Ghana going to revert to the days where people used to keep their
foreign currencies under “pillows” and in “bunkers” in their bed rooms?
It is being argued that preventing people from keeping accounts in
foreign currencies in Ghanaian banks may not answer the question of why
that sharp depreciation in the value of the Cedi, rather it may worsen
the situation.
If Ghanaians are prevented from keeping foreign currency accounts,
numerous issues may result. Foreign currencies are likely to be a
contraband item and most people will horde or hide them wherever they
can instead of keeping them with their bankers. Also, what will the
foreign exchange bureaux do, are they to cease operations?
One point that raises fear is that people are likely to keep their
foreign currency accounts in banks in neighboring countries through
proxies which may work to the advantage of our neighbours – Togo, Benin,
Cote D’Ivoire etc.
Instead of preventing or penalizing people for holding accounts in
foreign currencies which may end up creating an unwanted “black market”
in foreign currencies, such accounts must rather be allowed and that
deposit of foreign currencies in these accounts must be encouraged. It
should rather be withdrawals in foreign currencies that must be
restricted, discouraged or penalised through the tightening of the
exchange control regulations.
Ghanaians must not be encouraged to make their homes, their banks for
foreign currencies; they should be encouraged to deposit them with the
banks to increase the supply of foreign currencies with withdrawals
allowed only in Cedis. My submission is that the prevention from or
penalization for holding a foreign currency accounts in Ghana as being
proposed by many may not do the trick in helping to arrest the sharp
depreciation in the value of the cedi.
By Rita Appiah
Business Development Consultant
Corporate Executive Development Centre
A Management Development and Financial Advisory Firm
cedecconsult@yahoo.com
